SEC Matters

• Published date: 01 March 2015
• DOI: http://doi.org/10.1002/jcaf.22036
• Date: 01 March 2015

57

© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22036

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Donald A. Walker J r.

SEC Matters

SEC ENFORCEMENT MATTERS

The Whistleblower Program

The Division of Enforcement

has recently awarded major sums

of money to individuals provid-

ing tips under the Whistleblower

Program. Whistleblowers gener-

ally provide the best and earliest

information to the Securities and

Exchange Commission (SEC)

regarding potential financial

fraud and violations of the

securities laws. Self-identified as

knowledgeable of both conduct

and supporting evidence, whis-

tleblowers are encouraged by

Dodd-Frank protections and the

potential of significant payments

from the SEC. Providing an

internal whistleblower program

does not necessarily prevent SEC

compensation or enforcement

action, but does provide a com-

pany with the ability to identify,

remediate, and self-report prob-

lems, leading to credit from the

SEC for cooperation should an

enforcement case arise.

THE FOREIGN CORRUPT

PRACTICES ACT

The Foreign Corrupt Prac-

tices Act (FPCA) is an area of

great interest and focus for the

Division of Enforcement. The

FCPA Group continues to bring

enforcement cases for potential

bribery and related internal con-

trols violations, and is expected

to bring significantly more cases

as U.S. companies continue their

global expansion. A continu-

ing issue is the pressure to meet

expansionary sales and profit

goals in a world where payments

to government officials and

other participants in the sales

process have been customary

for many years. That pressure is

translated to pressure on com-

pany controls and reporting pro-

cedures that management relies

on to assure compliance.

INDIVIDUAL BEHAVIOR BEING

TARGETED

Whether company finan-

cial fraud or insider trading or

illegal facilitation payments are

involved, individual actions have

resulted in alleged violations of

the securities laws. As a result,

enforcement actions are increas-

ingly targeting individuals and

their behavior as a deterrent to

future violations. Additionally,

focus has fallen on the indi-

viduals as “gatekeepers,” such as

auditors of financial statements

or attorneys facilitating issuance

and sale of securities. Increas-

ingly, denial of the privilege to

practice before the SEC and bars

from the securities industry are

likely to continue as enforcement

tools.

ENFORCEMENT CASE—

INTERNAL CONTROLS AND

REVENUE RECOGNITION

Periodically, the SEC has

brought cases charging viola-

tions of the requirements for

reporting, books and records,

and internal controls under

Sections 13(a) and 13(b) of the

Securities Act of 1934. Those

cases often were based on viola-

tions of the Foreign Corrupt

Practices Act.

In September 2014, the

Commission sanctioned a

software company, JDA Soft-

ware Group Inc., for having

inadequate internal accounting

controls resulting in misstated

revenues in its public filings. The

complexity of revenue recogni-

tion standards for software com-

panies demands that a company

identify all service-related con-

tracts for which vendor-specific

objective evidence of fair value

(VSOE) must be determined,

and then for those contracts

determine the VSOE, before rec-

ognizing the entire revenue from

each agreement. As a result of

not having adequate controls for